The Chad-Cameroon Pipeline Project
Extracts from pp. 179-181; 198-200
“The Chad-Cameroon project was an early recognition that, in difficult governance settings, conventional prescriptions for getting the business environment right were an ill fit for the task at hand.The Chad Cameroon Pipeline project provides a powerful illustration of the opportunities, challenges and controversies surrounding a multistakeholder approach to private sector development. The project began in 1994 with an unusual approach by the Exon Corporation to the World Bank. Exxon had discovered vast oilfields in the Sahelian African country of Chad, and was contemplating investing upwards of $6 billion to extract the oil, and ship it over 3,000 kilometers by pipeline to Douala in Cameroon, and thence to world markets. There were so many things that could go wrong with this investment, each entailing such high costs, that in retrospect it is astounding that Exxon was willing to entertain the venture.
“There were the environmental risks of a pipeline that traversed desert, communal farmland and tropical forest – and Exxon, of course, knew something about this type of risk, and its reputational consequences, from the 1989 saga of the Exxon Valdez oil spill in coastal Alaska. There were the risks of sabotage from militias opposed to the Chadian government: in the three decades since independence, Chad had been chronically unstable, its population subjected to a long cycle of coups and civil war , which had ended only in the early 1990s, with a military victory by General Idriss Deby, which he punctuated by winning 69 percent of the vote in 1996, in Chad’s first ever democratic election.
“And, perhaps most unpredictable of all, there were the implications of making a $6 billion oil investment in what was then among the poorest countries on earth – a country of about 8 million people with an average per capita income of close to $200 per person. Across the globe, the natural resource ‘curse’, as it has come to be known, has had a long and dismal pedigree of fomenting, not rising levels of living for the citizens of resource-abundant countries, but inequality, corruption, strife and, at the limit, civil war.
“But then there was the ‘other hand’: Chad’s landlocked, semi-desert geography had seemingly consigned the country’s people to poverty without end. The discovery of oil offered the prospect of a different future. By what right should non-Chadians make the decision that this door of possibility should remain shut? This is where the World Bank came in. It wasn’t the Bank’s money that Exxon was after – the proposed contribution by the Bank was $340 million, just under 5% of the total project cost of $6.5 billion. What the Bank could bring was the imprimatur of development respectability.
“As a member of the Bank’s Africa regional management team, and as the manager responsible for some Bank staff who participated in the governance dimensions of the resulting operation, I was party to the controversy occasioned by Exxon’s audacious request. Should the Bank expose itself to the reputational risks? Did we have sufficient confidence that positive development results could follow from this type of investment in this type of setting?
“In the end, the Bank decided to go forward. But it did so in a novel way: it conditioned its involvement around a wide variety of unusual institutional arrangements. These included commitments from the Chadian authorities that:
- Each year 10 percent of oil earnings would be set aside for a future generations fund;
- No less than 85% of the remaining oil revenues received by the Chadian authorities would be spent on a set of priority sectors, as agreed by the government, the World Bank and other development partners. These comprised the bulk of economic activity: education, health, transport, housing, civil works, social affairs, rural development, mining and energy, justice and telecommunications.
- The Chadians would support the establishment of a local multi-stakeholder group to provide input on the allocation of these revenues, and to oversee that the money indeed was spent as intended. And
- Exxon would make all payments earmarked for the Chadian government into an international escrow account – with an international oversight group monitoring all revenues that went into the account, and where they all subsequently went.
In addition, by committing to support implementation the World Bank put itself on the line as part of the oversight structure. The totality of these institutional arrangements aimed to achieve the improbable: a positive development result from a large-scale oil investment, in an especially unpropitious setting.
” Chad-Cameroon oil projects unusual institutional arrangements aimed to defy the natural resource curse – to lock-in development results from oil revenues, even in the face of strong political pressures to the contrary. The World Bank was invited into the deal as the third party enforcer – on the presumption that the costs to the government of Chad of reneging on an agreement struck with an official multilateral organization like the World Bank were higher than the costs of reneging on Exxon. The trouble was that the calculus was incomplete.
“By 2005, the government of Chad found itself confronting a new insurrection, and wanted to use its oil money to scale-up its army. Where was this money? In an international escrow account monitored by an international, multistakeholder Board of Overseers – to be released only against a pre-agreed set of spending commitments, with over 80% committed to be used for social expenditures. Unsurprisingly, the Chadians began to unilaterally break the agreement. Paul Wolfowitz, then President of the World Bank, sprang to the rescue. In early 2006 he returned from Ndjamena, Chad’s capital, with a new agreement which modified somewhat the share of expenditures going to priority sectors. But this agreement rapidly fell to the wayside in the face of continuing military troubles.
“I stopped tracking this saga in detail in 2007, when the Chadian authorities used their growing flood of oil revenues to immediately repay in full the World Bank, and the Bank pulled out of the country. Meanwhile, Chinese oil companies had become increasingly active in Chad. By 2008, rebels had made their way to the gates of Ndjamena. So, when I decided to include the Chad project as a cautionary tale in my 2010 graduate seminar at Johns Hopkins University’s School of Advanced Studies, I fully expected to find that the government of Chad had fallen; that Exxon had pulled out; and that, with the resource curse having asserted itself in its most malign form, the commitment to social expenditures had collapsed. I was surprised by what I found.
“General Deby’s government had not fallen – though it had taken intervention by French troops to help it survive, and the veneer of democracy had been stripped away. Exxon had not left, indeed it continued to describe its Chadian venture as an example of good development practice. And, though the country was hardly an exemplar of probity and productivity, the development gains being achieved were not insignificant:
- Chad’s per capita income doubled between 2000 and 2005;
- annual fiscal revenues received by government rose from $112 million in 2000, to upwards of $2 billion by 2008;
- By 2008, the oil sector had purchased $1.2 billion of goods and services within Chad;
- Between 2000 and 2008 the quantity of paved roads in the country rose from 300 to 1,200 kilometers; the primary school enrollment rate rose from 61% to 88% of the relevant age cohort; the percentage of the urban population with access to clean water rose from 34% to 48%.
“On the governance and accountability front, the allocation of oil revenues remained geared quite strongly towards social expenditures, and the budget processes remained transparent. An otherwise critical report of the World Bank’s Independent Evaluation Group reported that: “Chad achieved a level of revenue transparency nearly unique in Africa and nearing international best practice. Equally important, during the past several years habits have been built in the direction of openness rather than secrecy.” Indeed, after the World Bank’s involvement in the sector ended, Chad reaffirmed its commitment to transparency by applying to join the EITI, and was accepted as a candidate country in 2010.
“None of this is to suggest that Chad is a paragon of good governance – indeed, it perhaps points to the narrowness of the EITIs expectations on its member countries. And the costs of Chad’s school and road infrastructure (including corruption via over-invoicing) made them among the most expensive in the world. But the combination of new institutional arrangements and development gains suggests that the determined efforts to strengthen institutions of oversight and accountability at the outset of the oil venture were not without consequence.
“There is one final question to be considered vis-à-vis the Chad oil deal. Given all that subsequently transpired, was it worth pursuing in the first place? When I confronted my students with this question, I was surprised by their response. Close to ninety percent of them thought that the World Bank did the right thing in going into the deal. And even knowing what actually happened, over eighty percent still thought that the effort was worth the risk. In an imperfect world, the half-loaf of what was achieved – in all its messiness, and all its continuing uncertainties – seemed to them to be preferable to resigned acceptance of Chad’s otherwise desperately poor, pre-oil reality.”
Pingback: The Chad-Cameroon Project — a glass partly full??? « WORKING WITH THE GRAIN: Integrating governance and growth